IFRS FINANCIAL REPORTS 2007 SAP GROUP

Transcription

1 IFRS FINANCIAL REPORTS 2007 SAP GROUP

2 HELPING CUSTOMERS ADAPT TO A WORLD OF CHANGE OUR ROAD MAP TO THE FUTURE Innovation is no longer the exclusive realm of the research and development lab. Today, it s the responsibility of every person in every organization every business day. SAP fosters innovation at the speed of today s fast-moving business environment. From technology platforms that allow applications to be customized on the fly, to comprehensive support services, to the world s most complete family of solutions for businesses of all sizes, we provide the tools that enable customers to stay one step ahead of relentless change while helping individual users work more productively. What s more, we deliver these tools with the added value of unparalleled expertise in more than 25 distinct industries, and the support of the world s largest partner ecosystem. This unique combination has helped SAP become the world s enterprise software leader, with 43,800 employees in more than 50 countries, and over 46,100 customers worldwide. SAP continues to accelerate the pace of change, through new technology platforms, new applications, and new best practices, to serve an everexpanding universe of customers, industry categories, and business roles. Because innovation and responsiveness are what our business is all about.

3 CONTENTS 002 Independent Auditor s Report 003 Review of SAP Group Operations 065 Consolidated Financial Statements 065 Consolidated Statements of Income 066 Consolidated Balance Sheets 068 Consolidated Statements of Recognized Income and Expense 069 Consolidated Statements of Changes in Equity 070 Consolidated Statements of Cash Flows 071 Notes to the Consolidated Financial Statements Other Information 151 Financial Calendar 152 Addresses and Publications for Shareholders 153 Publication Details IFRS Financial Reports 2007 SAP Group Contents 001

4 INDEPENDENT AUDITOR S REPORT We have audited the consolidated financial statements prepared by the SAP AG, Walldorf, comprising the balance sheet, the income statement, statement of recognized income and expense, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from January 1 to December 31, The preparation of the consolidated financial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to 315a Abs. 1 HGB [Handelsgesetzbuch German Commercial Code ] are the responsibility of the parent company s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with 317 HGB, German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in compliance with International Standards on Auditing (ISA). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated finan - cial statements in accordance with the applicable finan cial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accountingrelated internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to 315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Mannheim, Germany March 19, 2008 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Dr. Schindler Wirtschaftsprüfer Walter Wirtschaftsprüfer 002 IFRS Financial Reports 2007 SAP Group Independent Auditor s Report

5 REVIEW OF SAP GROUP OPERATIONS 1) General Information The SAP Group Of Companies Founded in 1972, SAP is today one of the leading international providers of business software and, based on market capitalization, it is the world s third-largest independent software manufacturer. We have more than 46,100 customers in over 120 countries and employ more than 43,800 people at sales and development locations in more than 50 countries in the Europe, Middle East, and Africa (EMEA), Americas, and Asia Pacific Japan regions. SAP is headquartered in Walldorf, Germany. Selling software licences for SAP solutions created by more than 12,000 developers all over the world is the core of our business. With these solutions, companies can design efficient, flexible business processes and make sustainable improvements to value creation. In 2007, our solution portfolio featured the SAP NetWeaver technology platform as well as the following key software applications: SAP Business Suite applications, which help large companies and international corporations improve business operations ranging from supplier relationships to production to warehouse management, sales, and all administrative functions, through to customer relationships Industry solutions for large companies and international corporations in more than 25 specific industries, for example discrete manufacturing, process industries, financial services, consumer products, retail, and the public, services, and utilities sectors SAP Business All-in-One solutions, our new SAP Business ByDesign solution, and the SAP Business One application, which address the needs of small businesses and midsize companies Solutions for business users, who need software to help them rapidly make strategic decisions and relieve them of administrative tasks In addition, we offer consulting, maintenance, and training services tailored for our software solutions. We develop and market our products in close cooperation with business partners. Our financial reporting divides our activities into three segments: product, consulting, and training. For more information about the segments, see Note 28 in the Notes to Consolidated Financial Statements section. Forward-Looking Statements This report contains forward-looking statements that are based on our beliefs and assumptions made using information currently available to us. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of We have based these forward-looking statements on our current expectations and related projections we make about future conditions and events, including but not limited to economic conditions in general and trends in our business; our ability to attract and retain personnel; competition in the software industry; our implementation of business strategy; the development and introduction of new services and products; freedom to use intellectual property; regulatory and political conditions; our adaptation to technological developments; the acceptance by the market of our services and products; terrorist attacks or other acts of violence or war; our integration of newly acquired businesses; our meeting customers requirements; and other risks and uncertainties, some of which we describe in the Risk Factors and Risk Management section. The words anticipate, believe, continue, counting on, is confident, estimate, expect, forecast, guidance, intend, may, outlook, plan, project, predict, seek to, should, strategy, want, will, would, and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements reflect our current views and assumptions and all forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those statements. The factors that could affect our future financial results are discussed more fully in our filings with the U.S. Securities and Exchange Commission (SEC), including among others our Annual Report on Form 20-F for fiscal year 2006 and our Annual Report on Form 20-F for fiscal year 2007, which will be filed with the SEC before June 30, Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report. We undertake no obligation to publicly update or revise any forwardlooking statements as a result of new information, future events, or otherwise. 1) Pictures and graphs are included for illustrative purposes only and are not part of the audited Review of SAP Group Operations. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 003

6 Managing for Value We use performance measures that help manage our primary aim, the sustained growth of corporate value, and the ancillary goal of profitable revenue growth. We use different value measures for operating profit and non-operating income, and at the Group level we use an overarching performance measure. All of the key numbers we used to measure our performance in 2007 were based on U.S. GAAP accounting. The key measures we use to manage our operational business are growth of software and software-related service revenue, the software revenue growth that underlies it, and the operating margin. The target values are tuned to each other for profitable growth. Software revenue growth is the key revenue growth driver because it tends to stimulate our other revenue streams. The chief source of software revenue is the one-time fees customers pay for software licenses. Generally, customers that buy software licenses also enter into maintenance contracts and these generate recurring software-related service revenue after the software sale. Maintenance contracts cover support services, regular software maintenance, and other unspecified software updates and enhancements. We also generate software-related service revenue when we provide software on subscription or hosting terms. Software revenue stimulates service revenue from consulting and training sales. Another measure we use is operating margin, which measures our overall operational process efficiency and the performance of our core business (software licenses, maintenance, and other software-related service revenue). Operating margin is the ratio of our operating income to total revenue, expressed as a percentage. To address more opportunities in new, untapped midmarket segments, over eight quarters starting with the first quarter of 2007 we are investing an additional 300 million to 400 million (approximately) to build a business around the SAP Business ByDesign solution. To show how much of our operating margin we are reinvesting in future growth, we report every quarter on when and how much of this investment has been made. We also use performance measures chiefly net financial income/expense and the effective Group tax rate to manage non-operating items: Financial income provides insight especially into the return on liquid assets and capital investments. To manage financial income, we focus on cash flow, the composition of our liquid asset and capital investment portfolio, and the average rate of interest at which assets are invested. Another aspect is management of working capital by reducing the days sales outstanding for receivables. The effective Group tax rate is the ratio of income taxes (in accordance with U.S. GAAP) to income from continuing operations before income taxes and minority interests, expressed as a percentage. Earnings per share (EPS) is a measure of the overall performance of the Group, because it catches all operating and non-operating elements of income. It represents the portion of consolidated net income allocable to each SAP share outstanding (using the weighted average number of shares outstanding over the reporting period). EPS is influenced not only by our operating and non-operating business but also by the weighted average number of shares outstanding. We see buying back stock as another good way (in addition to distributing a dividend) of returning value to shareholders, so we repurchase SAP stock for treasury pursuant to powers granted by the shareholders at their meetings. Our holistic view of the performance measures described above and our associated analyses together make up the information base we use for value-based management. We use planning and control processes to manage the compilation of these key measures and their availability to the decision makers. 004 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

7 Our long-term strategic plans are the starting point for planning and controlling processes, including creating a multiyear plan. We identify future growth and profitability drivers at a highly aggregated level. The process is intended to identify the best areas in which to target sustained investment. The next step is to distill multiyear plans for areas of development and for customer-facing and support functions, and to break them down by sales region. We allocate resources to achieve targets we derive from detailed annual plans. We also use quarterly forecasting processes, which we can adapt ad hoc, to quantify success in realizing strategic revenue and income goals and to identify any deviations from plan. We closely monitor the concerned units in the Group to analyze such developments and define any appropriate actions. The entire network of planning, control, and reporting processes is implemented in integrated planning and information systems across all organizational units so that we can conduct the evaluations and analyses needed to make informed decisions. For example, we can precisely analyze differences in profitability between subsidiaries or investigate the impact of revenue growth on income. Financial Measures Cited in this Review We express our internal management reporting and operational objectives and targets in terms of financial measures prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP). We file our consolidated financial statements with the U.S. Securities and Exchange Commission (SEC) and publish them in our annual report. We also use certain adjusted financial measures, from which currency and extraordinary effects are eliminated, in our management reporting. These are neither U.S. GAAP nor IFRS measures, and we refer to them in this review of operations as non-gaap measures. Among the reasons we publish U.S. GAAP financial statements is to provide a basis for comparing our numbers with those of our U.S. segment peers. This review of operations therefore discusses not only the financial measures in our IFRS statements but also U.S. GAAP numbers and the non- GAAP measures described below, especially in the discussion of our revenue and of the 2008 outlook. Non-GAAP Measures In our reporting of 2007, we refer to non-gaap financial measures that are based on U.S. GAAP and are adjusted for comparison on a constant-currency basis. In addition, the outlook guidance information for 2008 discusses further non-gaap financial measures. They include non- GAAP revenue, non-gaap operating income, and non- GAAP operating margin numbers, as well as constant currency period-over-period changes in revenue. Our non- GAAP financial measures are not prepared in accordance with U.S. GAAP or IFRS standards and are therefore not U.S. GAAP financial measures or IFRS financial measures. Our non-gaap financial measures may not correspond to adjusted financial measures that other companies report. The non-gaap financial measures that we report should be considered as additional to, and not as substitutes for or superior to, revenue, operating income, net income, cash flows, or other measures of financial performance prepared in accordance with IFRS or U.S. GAAP. This report shows how our non-u.s. GAAP financial measures reconciled to the nearest U.S. GAAP financial measures for the report year and earlier years. In addition, it shows the IFRS numbers and how they reconcile to the most nearly corresponding U.S. GAAP measures. Non-GAAP Revenue, Non-GAAP Operating Income, and Non-GAAP Operating Margin We believe that it is of interest to investors to receive certain supplemental historical and prospective financial information used by our management in running our business in addition to financial data prepared in accordance with IFRS or U.S. GAAP. The outlook we provide for 2008 is based on the same non-gaap revenue, non-gaap operating income, and non-gaap operating margin measures we have been using since the beginning of 2008 for our budgets, forecasts, reports, compensation, and communications. Non-GAAP Revenue Revenue in this report identified as non-gaap revenue has been adjusted from the corresponding U.S. GAAP numbers by including the full amount of Business Objects S.A. (Business Objects) support revenue that Business Objects would have recognized had it remained a standalone entity but that we are not permitted to recognize as revenue under U.S. GAAP as a result of fair value accounting for the Business Objects support contracts we stepped into when we acquired Business Objects. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 005

8 Under U.S. GAAP, we record at fair value the obligations assumed under Business Objects support contracts in effect at the time of the acquisition of Business Objects. Consequently, our U.S. GAAP support revenues, our U.S. GAAP software and software-related service revenues, and our U.S. GAAP total revenues for periods after the Business Objects acquisition do not reflect the full amount of support revenue that Business Objects would have recorded for these support contracts if SAP had not acquired Business Objects. Adjusting revenue numbers for this one-time revenue effect provides additional insight into our ongoing performance because the support contracts are typically one-year contracts, and renewals of these contracts are expected to result in revenues that are not affected by the business combination-related fair value accounting. We believe that our non-gaap revenue numbers have limitations, particularly as the eliminated amounts may be material to us. We therefore do not evaluate our growth and performance without considering both non-gaap revenue and U.S. GAAP revenue. We caution the readers of this document to follow a similar approach by considering our non-gaap revenue only in addition to, and not as a substitute for or superior to, revenue or other measures of our financial performance prepared in accordance with U.S. GAAP. Non-GAAP Operating Income; Non-GAAP Operating Margin Operating income and operating margin in this document identified as non-gaap operating income or non-gaap operating margin have been adjusted from the respective operating income and operating margin numbers as recorded under U.S. GAAP by including in our non-gaap revenue the full amount of Business Objects support revenue excluded under U.S. GAAP fair value accounting, and by excluding acquisition-related charges. Acquisitionrelated charges in this context comprise: Amortization expense of intangibles acquired through business combinations and standalone acquisitions of intellectual property Expense from purchased in-process research and development Restructuring expenses as far as incurred in connection with a business combination and accounted for under SFAS 146 as exit activity Although acquisition-related charges include recurring items from past acquisitions, such as amortization of acquired intangible assets, they also include an unknown component relating to current-year acquisitions. We cannot accurately assess or plan for that unknown component until we have finalized our purchase price allocation. Furthermore, acquisition-related charges may include onetime charges that do not adequately reflect our ongoing operating performance. Eliminating acquisition-related charges makes it easier to draw comparisons with our past operating performance and with the operating margins of peer companies in our industry that have a different history to our own in respect of acquisitions. We believe that our non-gaap financial measures described above have limitations, particularly as the eliminated amounts may be material to us. We therefore do not evaluate our growth and performance without considering both non-gaap operating income and margin numbers and U.S. GAAP operating income and margin numbers. We caution the readers of this document to follow a similar approach by considering our non-gaap operating income and margin numbers only in addition to, and not as a substitute for or superior to, revenues or other measures of our financial performance prepared in accordance with U.S. GAAP. 006 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

9 As comparators for our 2008 outlook guidance, we show our 2007 non-gaap revenue, non-gaap operating income, and non-gaap operating margin. They reconcile to the nearest U.S. GAAP equivalents as follows: millions, except operating margin Business Objects Support Revenue IFRS vs. not Recorded Aquisition- U.S. GAAP U.S. GAAP Under Related Non-GAAP IFRS Measure Difference Measure U.S. GAAP Charges Measure Software and software-related service revenue 7, ,427 7,427 Total revenue 10, ,242 10,242 Total operating expenses 7, , ,449 Operating income 2, , ,793 Operating margin on continuing operations 26.3% 0.4% 26.7% 27.3% Constant Currency Period-over-Period Changes We believe it is important for investors to have information that provides insight into our sales growth. Revenue measures determined under IFRS or U.S. GAAP provide information that is useful in this regard. However, changes in sales volumes, prices, and currency exchange rates all affect period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide data expressed in such units to show changes in the volume of products and services sold. To provide information that may be useful to investors in breaking down and evaluating sales volume growth, we do present information adjusted for foreign currency effects about our U.S. GAAP revenue growth and various values and components relating to U.S. GAAP operating income. We calculate constant currency year-over-year changes in revenue and operating income by translating foreign currency items using the average exchange rates from the previous (comparator) year instead of the report year. We believe that data on constant currency period-overperiod changes has limitations, particularly as the currency effects that are eliminated constitute a significant element of our revenues and expenses and may materially affect our performance. We therefore limit our use of constant currency period-over-period changes to the analysis of volume and price changes as elements of the overall change in a financial measure. We do not evaluate our growth and performance without considering both constant currency period-over-period changes on the one hand and changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering constant currency period-over-period changes in measures of financial performance only in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income or other measures prepared in accordance with IFRS or U.S. GAAP. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 007

10 Constant currency year-over-year changes in revenue and operating income reconcile to the respective unadjusted year-over-year changes as follows: Percentage Change from Percentage Percentage 2006 to 2007 Change from IFRS vs. Change from (U.S. GAAP U.S. GAAP 2006 to 2007 U.S. GAAP 2006 to 2007 Constant Currency IFRS Difference U.S. GAAP Currency) Effect % % % % Percentage Points Software revenue Support revenue Subscription and other software-related service revenue Software and software-related service revenue Consulting revenue Training revenue Other service revenue Professional service and other service revenue Other revenue Total revenue Software revenue by region 1) : EMEA region 2) Americas region Asia Pacific Japan region Software revenue Software and software-related service revenue by region: Germany Rest of EMEA region EMEA region United States Rest of Americas region Americas region Japan Rest of Asia Pacific Japan region Asia Pacific Japan region Software and software-related service revenue Total revenue by region: Germany Rest of EMEA region EMEA region United States Rest of Americas region Americas region Japan Rest of Asia Pacific Japan region Asia Pacific Japan region Total revenue Operating income ) By customer location 2) Europe, the Middle East, and Africa 008 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

11 Economic Conditions Global Economic Trends The global economy continued to grow in 2007 despite turbulence on the financial markets, high prices for commodities, and falling real-estate prices. Both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) reached this conclusion in the analyses they presented at the end of the year. The IMF reports global GDP the total value of all goods and services grew 5.2%, compared with 5.5% in The OECD believes the combined economies of the industrialized countries grew 2.7% in 2007 while, according to the IMF, economic activity in the countries with developing and emerging economies increased 8.1%. Various shockwaves buffeted the economy during the year. The subprime lending crisis that flared up in the United States triggered significant pressure on prices for real estate in many countries and dealt the finance sector a hard blow. Some stock prices fell back steeply, while interest rates on the money markets and yields on investment vehicles collateralized with subprime loans spiked. At the same time, prices for important commodities fuel, metals, and food stayed high. In the OECD s analysis, the economy was so strong in 2007 that it was able to withstand these pressures relatively unscathed. That was because levels of employment had increased in the industrialized countries, significantly boosting consumer spending and favoring economic growth, the OECD reports. Growth was also favored by companies sound profitability and funding levels. But although the global economy continued to grow, the knocks it took, described above, did exert a considerable drag on activity in the second half of For example, fourth-quarter growth slowed to 2.6% per year in the industrialized countries in 2007 from 3.2% in the previous year. In the IMF s eyes, the world economy entered a precarious, possibly difficult, phase in the second half of It reports that the turbulence on the money markets caused by the mortgage crisis in the United States were serious and the mood on markets generally had turned somber as a result. Looking at the regions separately, the IMF believes that as a result of the reticence of investors on the money and real-estate markets, in 2007 the U.S. economy grew only 1.9%, compared with 2.9% the previous year. On the other hand, the IMF believes that in the European Union (EU) total output grew 3% in 2007 (2006: 3.2%). It estimates German economic growth was 2.4% (2006: 2.9%). For the industrialized countries in Asia, the IMF paints a cheerier picture of 4.9% growth (2006: 5.3%). But the emerging and developing countries were again the driving force: Their economies grew 8.1%, matching the previous year. The dip in economic growth also affected the volume of world trade, which, the IMF reports, grew 6.6% in 2007, compared with 9.2% the year before. IT Market in 2007 Despite uncertainties surrounding the health of the economy, demand for IT (excluding telecommunications) grew even more in 2007 than in the year before. Continued price declines in hardware diverted a larger proportion of IT budgets toward software and IT services. That is the assessment of prominent U.S. market research firm IDC. It says worldwide IT spending rose 6.9% (2006: 6.3%). IDC reports especially strong growth in sales of packaged software: In 2007, this segment of the IT market grew 8.8%, compared with 8.0% in 2006, it says. According to IDC, industry and application software solutions as a segment of the software market grew 7.7% (2006: 7.3%). The services segment was again strong, with 6.2% expected growth (2006: 5.7%). IDC reports that continuing cheer in Europe and especially in the emerging markets made up for sluggish IT sales growth in the United States. Sales of system infrastructure software were also strong. On the other hand, demand growth for high-end servers and traditional workstations was far less pronounced in 2007 than in 2006, IDC says. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 009

12 Gartner, another major market research firm in the United States, believes that global spending on IT (excluding telecommunications) rose 9.0% in 2007 compared with 5.5% in Looking at 2007 in the regions, IDC and Gartner note that North America accounts for some 40% of world IT sales (excluding software), and that North American demand growth for IT at 6.5% was weaker than the world average. The growth in demand for hardware (5.7%) and services (5.6%) also faltered. However, demand for software remained buoyant in North America, growing 8.9% in IDC also reports that applications sold well, especially solutions supporting information management and data analysis. IDC also says that in 2007, demand for IT grew 4.8% in Western Europe, which accounted for 30.9% of world IT spending. It believes this reflected the state of the regional economy, which remained healthy. Sales accelerated even more strongly, 17.9% over the year, in Eastern Europe, says IDC, although the market there had only 10.4% of the volume of the Western European IT market. It reports that software sales grew 8.6% in Western Europe and 14.9% in Eastern Europe. IDC says that in 2007, total IT spending in Germany grew 3.8%. The German Association for Information Technology, Telecommunications, and New Media (BITKOM) is pleased with the advance of the IT business. In IDC s analysis, the market remained strong in the Asia Pacific region. It represents almost 20% of the global IT market and grew 7.5% in As before, double-digit percentage increases in China and India made those two countries the engines of growth in the region, IDC reports. It says IT sales rose 2.6% in Japan. In Gartner s view, IT sales growth in Japan was even more modest in 2007, at 0.2%. Business at SAP Mission and Strategy Trends and Orientation Our mission and guiding principle is unchanged: to define and establish undisputed leadership in the emerging market for business process platforms, accelerate business innovation powered by IT for companies and industries worldwide, and thus contribute to global economic development on a grand scale. The far-reaching and rapid changes in today s business environment pose a challenge and present opportunities. We are currently witnessing the continuing breakup of the classic value chain, with its fixed relationships between buyers and suppliers. In its place, we are seeing business network transformation, the development of dynamic networks of businesses that each offer different competencies. The companies that grasp this opportunity and adapt can gain a vital advantage on the global market. Increasingly, the strategic deployment of IT is becoming a critical success factor, not just for large corporations, but also for smaller businesses and midsize companies. We offer software and services our customers can use to meet today s challenges head on and gain the most from the new opportunities: Accelerated innovation: In the next few years, we expect IT will play an increasingly key part in the development of new business models. SAP has the applications we believe companies will need. Rapid strategic implementation: SAP s solutions are imbued with our decades of experience of the business processes and requirements in specific industries. Our expertise helps our customers optimize their procedures for maximum efficiency. Building a business process platform based on enterprise service-oriented architecture (enterprise SOA), SAP solutions offer a much more rapid way to implement new strategies than was possible with any earlier approach. 010 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

13 Return on human capital investment: SAP applications help our customers deploy their most important capital assets more profitably. Examples include efficient personnel development, teams working across multiple locations on complex projects, and support for globally dispersed staff. Responsible management on a global footing: SAP applications support legal compliance and responsible, value-driven governance, risk assessment, and control. By building our traditional core business, we continue to deliver all of this value to our larger enterprise customers. At the same time, we are establishing new business with fast-growing smaller companies in the midmarket. Expanding Our Traditional Core Business Our traditional core customer base includes many large global enterprises as well as midsize companies with between 500 and 2,500 employees. Such companies use the SAP Business Suite applications or SAP Business Allin-One solutions to automate their business transactions, enabling better management and governance. By continuing to develop SAP Business Suite applications for specific business requirements, we are helping our customers create more value. We are also delivering more data analysis and decision support solutions and are linking the structured information in SAP systems with unstructured information, helping our customers boost the productivity of their employees and increasing the return our customers gain from their investment in SAP software. All of the SAP Business Suite applications and SAP Business All-in-One solutions are built on an enterprise SOA, which encourages agility with standardized enterprise services that are deployable immediately. It also provides stability, reliability, and scalability for enterprise software. Thus, it unlocks opportunities to innovate and adapt business processes rapidly as well as to reduce the total cost of ownership (TCO). By adding powerful enterprise services to the SAP NetWeaver technology platform, we are helping our customers evolve a true enterprise SOA from their existing IT landscapes. Our offering is an integrated combination of technology infrastructure and ready-to-run process components that are based on our wealth of specific expertise and experience in very many industries. Our partners, customers, and developers are collaboratively expanding and adding depth to our solution port - folios. Progressively, an ecosystem is growing, in which, we believe, customers, partners, and developers all thrive on the benefits of enterprise SOA. Developing New Business with Smaller Midmarket Companies We already provide SAP Business All-in-One solutions to customers with 500 to 2,500 employees. SAP Business All-in-One solutions are built specifically for midsize companies that need a full range of industry-specific functions, functional depth, and the extensibility to meet their precise requirements. However, companies with 100 to 500 employees have distinctly different software needs. To them, getting their new IT solution running quickly, at minimum risk and predictable cost, is often more important than specific functional depth. Many such companies do not believe that their needs can be met by traditional software offerings or by the available on-demand solutions. To serve this segment, in 2007 we added the SAP Business ByDesign solution to our range of products. It is designed around four key principles: completeness, ease of use, adaptability, and a significant reduction in TCO. Customers use SAP Business ByDesign on the Internet, so they spend little time and money implementing it, and their IT risk is reduced. SAP Business ByDesign has builtin service and support, and customers can test it free of charge before they commit. It also enables customers to reduce their IT investment budgets. The SAP Business One application is designed for businesses with fewer than 100 employees. It is a single solution that can automate critical business operations such as purchasing, sales, distribution, and finance. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 011

14 Strategy for Growth We plan to realize our potential for growth in the following ways: Organic growth: Our primary growth strategy is to continue to develop our own product portfolio. Co-innovation: We are expanding our partner ecosystem. This accelerates innovation by supporting the development of solutions built on the SAP NetWeaver technology platform, and leverages more sales channels to address the various market and customer segments. Smart acquisitions: With targeted strategic fill-in acquisitions that add to our broad solution offering for individual industries or across industries, we gain specific technologies and capabilities that meet the needs of our customers. To accelerate our growth in the field of business intelligence, we acquired Business Objects at the beginning of This gives us a platform to tap the market for business performance management solutions with more innovations. Significant Results and Events Revenue Targets Exceeded; Profitability Target Hit In a field that remained fiercely competitive in 2007, we again achieved substantial increases in revenue and hit our profitability target, measured in terms of operating margin. Each region contributed, with above-average growth in Brazil, Russia, India, and China. We expressed our internal management objectives and operational targets for 2007 in terms of U.S. GAAP and non-gaap financial measures. For that reason, the following discussion refers to U.S. GAAP financial measures and non-gaap financial measures as well as IFRS measures. For our 2006 and 2007 revenue and operating margin, there is no material difference between the IFRS and U.S. GAAP numbers. On a constant currency basis, our growth percentage was in double digits in every region and strong enough to again improve our competitive position. We exceeded the guidance for software and software-related service revenue that we announced in U.S. GAAP terms at the beginning of the year. In 2007, U.S. GAAP software and software-related service revenue grew 13% to 7,427 million (2006: 6,596 million; 2005: 5,955 million). On a constant currency basis, our U.S. GAAP software and software-related service revenue grew 17%. This was in excess of the 12% to 14% range on a constant currency basis we had foreseen in our published U.S. GAAP guidance. Our U.S. GAAP software revenue increased 13% to 3,407 million (2006: 3,003 million; 2005: 2,743 million). That corresponds to an 18% increase on a constant currency basis. It was our best constant-currency based software revenue growth since Our IFRS software and softwarerelated service revenue also grew 13%, to 7,441 million (2006: 6,605 million). Our large enterprise customers demand for better developed strategic relationships with us, expressed in the form of global enterprise agreements (GEAs) providing subscription services, noticeably boosted our software and software-related service revenue. By the end of the year, we had concluded 11 such agreements. U.S. GAAP and IFRS require us to recognize the revenue from such agreements in stages over several years. Our IFRS total revenue grew 9% to 10,256 million (2006: 9,402 million). Year over year, our total U.S. GAAP revenue also grew 9% to 10,242 million (2006: 9,393 million; 2005: 8,509 million). On a constant currency basis, our U.S. GAAP total revenue grew 13%. Our U.S. GAAP operating margin was 26.7% (2006: 27.4%; 2005: 27.5%). This was in accordance with the profitability guidance we published at the beginning of the year, in which we said we expected the operating margin to be between 26.0% and 27.0%. Our operating margin according to IFRS was 26.3% (2006: 26.6%). Our IFRS software and software-related service revenue grew 9% in the Americas region, 19% in the Asia Pacific Japan region, and 13% in the EMEA region. Based on customer location, in all three sales regions our U.S. GAAP software and software-related service revenue growth percentage was in double digits on a constant currency basis. On a constant currency basis, our U.S. GAAP software and software-related service 012 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

15 revenue grew 17% in the Americas region, 24% in the Asia Pacific Japan region, and 14% in the EMEA region. We recorded remarkable software and software-related service revenue growth, on a constant currency basis, in Russia and France. In terms of total sales, we again gained segment share an additional four percentage points in the core enterprise application vendor segment. Globally, our share (measuring software and software-related service revenue) among the core enterprise application vendors reached 28.4% by the end of That means we were fully 12 percentage points ahead of our closest rival. Based on information from industry analysts, we estimate the total sales of all core enterprise applications to be US$36.7 billion a year. In keeping with our announcements, we launched our new SAP Business ByDesign solution for midsize companies and released many enhanced products in the course of the year, including new versions of the SAP Customer Relationship Management (SAP CRM) application and of a governance, risk, and compliance (GRC) application, SAP GRC Risk Management. Demand for the SAP ERP 6.0 application is especially high, and by the end of the year more than 5,100 customers were already using it in live operation. Our customers are also buying in to our SAP NetWeaver technology platform: At the end of the year, there were already more than 29,000 systems in live use. Our volume business model for the SME segments again proved successful, and in 2007 we consolidated our leading position. The number of channel partners and their customers grew rapidly: The number of midsize companies using SAP Business All-in-One solutions grew 19% to 11,350, and the number of channel partners selling them increased 17% to 1,100. Our SAP Business One small business application channel partners grew 4% in number to 1,350. By the end of the year, channel partners offering SAP Business One were serving 17,780 customers a 39% year-over-year increase. By the end of the year, we already had 150 customer engagements and more than 50 partners for SAP Business ByDesign, which we had launched in September. Product and Service Portfolio In 2007, we again brought various new and enhanced solutions to market in all four core areas of our product portfolio enterprise applications and industry solutions, platform, software for small businesses and midsize companies, and offerings for business users. For more information about our new and enhanced applications and solutions, see the Development News section. Partner Ecosystem Grows In 2007, we continued to forge development alliances and projects that we believe will help shape our future. Examples include: With U.S. company Cisco Systems, Inc., we are jointly developing a new breed of business solutions that can transform how applications and networks interact. The new solutions are designed to encourage agility in business networks of customers, partners, suppliers, and employees across geographically dispersed, heterogeneous business and IT landscapes. With UK banking software specialist Misys, we announced an agreement to deliver integrated solutions for international trade finance. The solution, which is based on Misys BankFusion, will run with key SAP components on the SAP NetWeaver technology platform. This will enable banks to choose a broad set of solutions from one source, helping them reduce IT infrastructure complexity. We also announced a collaborative project with Belgian software makers Callataÿ & Wouters to provide a solution for the banking industry. Together, we are offering a core banking solution for midsize banks to build a business process platform combining the Thaler banking product from Callataÿ & Wouters with SAP software and technology. We announced plans to collaborate on enterprise SOA for banking with SunGard Data Systems Inc., a leading IT and software vendor for financial services providers and public sector organizations. The first offering will be a joint asset liability management solution for the financial services provider segment. The new collaboration supports business process platforms for banks, uniting the strengths of SAP applications with those of Sun- Gard s BancWare. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 013

16 SAP and TechniData AG together developed integrated software to help chemicals companies address the complex tasks required by the newly enacted European Registration, Evaluation, and Authorization of Chemicals (REACH) legislation. This SAP REACH Compliance application is delivered as an extension to the existing SAP Environment, Health & Safety (SAP EH&S) application and adds to our portfolio of GRC solutions. We are also creating an executive advisory council to increase GRC collaboration with partners and customers. We extended our reseller agreement with Vistex, Inc., a U.S. software vendor. We agreed to resell Vistex payback and chargeback management solutions worldwide. Vistex solutions help distributors and manufacturers in several industries such as consumer products, food services, life sciences, and retail automate and streamline their pricing and rebate processes. We entered into an alliance with Computer Sciences Corporation (CSC) with the aim of bringing together CSC s core banking system with SAP s technology and applications. Together, we are focusing on providing banks with the flexibility they need, with greater productivity, streamlined business process integration, and consolidated platforms. We announced midyear that we would resell and market Visiprise manufacturing process management software under the name SAP Manufacturing Execution by Visiprise. It supports complex manufacturing processes with functions for route enforcement, traceability, and shop floor quality management. We entered into a global reseller agreement with Canadian company Nakisa, Inc. Together, the two companies integrated Nakisa s organizational and talent management visualization capabilities to enhance and extend the SAP ERP Human Capital Management (SAP ERP HCM) solution. The Nakisa capabilities help organizations view, update, and analyze their talent inventory and the availability of potential successors in key positions. Acquisitions Enrich Product Portfolio In 2007, we continued our announced policy of organic growth complemented by acquisitions aimed at enriching our product portfolio in terms of both technology and functions. We acquired five companies by buying their equity and we acquired the material assets of two other companies. In February, we acquired Pilot Software, a privately owned California company that makes strategy management software. Worldwide, 150 customers were using the software at the time of acquisition, for example in the retail and financial services industries and in the public sector. The Pilot Software acquisition broadens our analytic applications offering. Pilot Software solutions address executive requirements for tools to fully measure, evaluate, and manage corporate performance. In May, we acquired Wicom Communications Ltd., a leading, privately held provider of all-internet Protocol contact center and enterprise communications software. The acquisition will enable SAP to offer companies the ability to better integrate communications technologies and business systems so they can provide more effective customer-facing services on all channels. The Wicom solution helps our customers streamline the integration of disparate hardware and software components while allowing for central management and reporting of dispersed resources and processes. Customer service, marketing, finance, and sales and distribution departments can be better linked and all customer-facing personnel, wherever they are located, see the same data and information. It supports standard Web servicebased integration with SAP CRM. Also in May, we acquired MaXware, a privately held provider of identity management software in Norway. At the time of acquisition, MaXware had around 300 customers worldwide in a diverse range of industries, such as technology, manufacturing, defense, energy, healthcare, financial services, and the public sector. The MaXware solutions complement the identity management functions on the SAP NetWeaver technology platform. It gives companies with heterogeneous IT landscapes an integrated platform for working across systems and across business processes to manage identities and ensure security in real time. By combining 014 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

17 MaXware s proven and easy-to-configure identity management solution with SAP s business applications and the SAP NetWeaver technology platform, we can offer identity management software that increases agility of business units when managing employee identities including managing identities across company boundaries with customers, channel partners, or suppliers. We also offer a strong solution in the related field of GRC access control. In June, we acquired OutlookSoft Corporation, a privately held U.S. software vendor. This was a specialist company making financial and strategy performance measurement solutions, and the acquisition extends our portfolio of solutions to help chief financial officers (CFOs) manage corporate performance, risk, and financial value chains. The OutlookSoft solution offers end-to-end guidance through financial business processes, integrated predictive analytics, and a rich library of ready-to-use corporate performance management methods and procedures. The applications leverage Web 2.0 technologies for ease of use. A broad palette of functions simplifies collaboration across the enterprise. In October, we acquired selected material assets of one of our exclusive partners of long standing, SAP Arabia LLC notably all of that company s customer license and maintenance contracts, its rights under distributorship agreements, and its trademarks. We have already opened office locations in Dubai and Saudi Arabia as part of our global expansion. We acquired the assets of Yasu Technologies, a privately owned company headquartered in India and a leader in business rules management systems, in October. We intend to embed Yasu Technologies solutions in our SAP NetWeaver technology platform as part of SAP NetWeaver Composition Environment. This provides the business rules infrastructure to help companies move their strategies forward. Partners would be able to integrate the solution directly into their offerings. In October, we announced that we had agreed to make an offer for all of the stock of Business Objects for a purchase price of per common share. For the Business Objects American depositary receipts (ADRs), we offered the U.S. dollar equivalent based on the euro to dollar exchange rate at the time of settlement. The overall cost of the deal including expenses is expected to be a little more than 4.8 billion. Together, SAP and Business Objects intend to offer high-value business and process solutions for business users. We completed the take over of Business Objects in early For more information about our acquisition of Business Objects, see the Business in the New Year: Early News section. In November, we acquired Silk Europe, a privately held software company based in Belgium. Silk is an Outlook- Soft reseller in the Netherlands and Belgium. Financial Strength Allows Corporate Action Again In 2007, our strong financial position again gave us room for corporate action in the interests of shareholders. By resolution of the SAP AG Annual General Meeting of Shareholders on May 10, 2007, the Executive Board was empowered to repurchase Company shares for treasury and to cancel the treasury stock without a further resolution of the Annual General Meeting of Shareholders. Pursuant to a resolution of the Executive Board, in September 2007 we canceled 23 million treasury shares, which represented approximately 1.8% of the common stock at that time, to reduce the common stock of SAP AG from 1,269,040,112 to 1,246,040,112 (represented by 1,246,040,112 no-par shares, each with an attributable value of 1). In the course of 2007, we bought back about 27.3 million shares at an average price of per share, and on December 31, 2007, we held more than 48.1 million SAP AG shares in treasury. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 015

18 Organization There were various material changes to our organization in 2007: On January 31, 2007, we presented the management team of our new global line of business that focuses on the small and midsize enterprise (SME) market. We have brought together our SME market resources under the leadership of Hans-Peter Klaey so that we can more effectively address the requirements of small businesses and midsize companies and develop customer and partner business in that arena. In February, the Supervisory Board extended the contract of Henning Kagermann as a member of our Executive Board to May 31, Shai Agassi, a member of our Executive Board, left SAP on April 1, 2007, by mutual agreement to commit himself to environmental policy, alternative energy sources, and other issues. In March, Léo Apotheker, president of Customer Solutions & Operations and member of the Executive Board, assumed the new role of deputy CEO of SAP AG. In November, the SAP Global Internal Audit Service (GIAS) became the first internal audit department in Germany to receive certification from the Institute of Internal Auditors (IIA). The IIA inspected the methods and processes GIAS uses for conformity to the International Standards for the Professional Practice of Internal Auditing. The assessment shows that the GIAS charter, policies, and processes conform to the IIA standards and code of ethics on an overall basis. Such external certification provides evidence of our internal audit service s high level of integrity. Worldwide Organizational Growth We continued to optimize our regional presence in 2007, focusing principally on adapting our field and research and development (R&D) organizations to better meet the needs of the day. We merged our two field organizations in the EMEA region, EMEA Central and EMEA North, East, West, South, to form a single organization with the aim of intensifying our sales efforts to large and midsize enterprises. The move consolidated all field responsibility for the entire region in the hands of Erwin Gunst, who is a corporate officer and member of our executive council, and it focused our EMEA field organization even more strongly on opportunities for growth arising out of burgeoning cross-border business processes. Bill Mc- Dermott, also a corporate officer and member of the executive council, assumed responsibility for the Asia- Pacific-Japan sales region. He was already responsible for the Americas region. We founded the SAP Co-Innovation Lab at the SAP Labs facility in Palo Alto, California. It will be our base for cooperatively developing new technologies with customers, independent software vendors, system integrators, and other partners. They will be able to work together on industry applications and innovative technologies, and to showcase how customers can increase competitive advantage and improve efficiencies by transforming their business networks with enterprise SOA. Founding sponsors of the SAP Co-Innovation Lab include Cisco Systems, Inc., Hewlett-Packard Company, Intel Corporation, and Network Appliance, Inc. We are also expanding our development resources in India. We identified India as a strategic focal point for growth in 2006 and earmarked extra resources to fully develop our potential in the Indian market. SAP Labs India is already our biggest research and development center outside of Germany. Our target is to invest around US$1 billion in India by Significant New Customer Contracts; Customer Base Passes 46,100 We grew our customer base by more than 8,100 in 2007, to beyond 46,100. The year was characterized by a variety of product innovations and the rapid expansion of our offering for small businesses and midsize companies. Currently, we define more than 65% of our customers as small businesses and midsize companies. In 2007, we sealed contracts with many large corporations and midsize organizations. For example: The State Administration of Taxation of the People s Republic of China bought a tax management solution from SAP to simplify and consolidate tax administration processes. The initial deployment was at Xicheng District National Tax Bureau in Beijing, covering more than one-fifth of the country s top enterprises. The solution uses the SAP NetWeaver Business Intelligence component to integrate information from various IT systems. 016 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations

19 To help optimize the management of the benefits it provides, AOK, Germany s largest health insurer, announced plans to enhance oscare, its industry solution based on SAP software. AOK wants its policyholders to benefit from shorter processing times for medical, nursing, and care benefits. Multinational consumer goods conglomerate Unilever strengthened its long-time relationship with SAP. Unilever is deploying SAP ERP and the SAP NetWeaver technology platform as the cornerstones of a companywide organizational optimization initiative, including transitioning to enterprise SOA. It was the first consumer goods company to sign a global enterprise agreement with SAP. The GEA is a strategic, subscription-based master agreement characterized by close long-term cooperation between the parties. It provides worldwide software licenses and maintenance, and strengthens SAP s position as Unilever s strategic partner during its entire structural adjustment. Global retailer Wal-Mart Stores, Inc. decided to enhance its financial information systems using the SAP ERP Financials solution. Wal-Mart chose the SAP application for its ability to support global expansion and efficiently respond to changes in the business and regulatory landscape. ESPRIT, an international lifestyle brand, chose SAP ERP for its global retail and wholesale operations. The SAP software will help ESPRIT integrate its global supplier network, optimize retail and value processes, and support its international growth. The Edeka group, a leading food retailer in Germany, announced it would consolidate its IT activities with SAP software. We will be Edeka s technology partner under an arrangement with a planning horizon to Edeka will be using functions from the SAP for Retail solution portfolio, SAP ERP, and the SAP NetWeaver technology platform. Vodafone Group Plc, a leading cell phone operator, extended the scope of its 2005 master agreement with SAP to cover the deployment of business applications and services based on SAP ERP and the SAP Net - Weaver technology platform to Vodafone companies worldwide. Hitachi, Ltd., a leading global electronics company, strengthened its long-time relationship with SAP by choosing the SAP ERP application, built on the SAP NetWeaver technology platform. Hitachi signed a GEA with SAP, providing broad access to SAP solutions. Dow Corning Corporation, a leading innovator of siliconbased solutions, adopted SAP CRM and the SAP NetWeaver technology platform as the foundation to unify its customer-facing business processes on a single, integrated SAP application platform. In August 2007, we welcomed the 10,000th customer to choose SAP Business All-in-One solutions for midsize companies: U&M Mineração e Construção, a Brazilian engineering, heavy construction, and mining company. U&M, which specializes in earth moving and surface and underground mine contracting, runs a solution from Procwork, an SAP partner in Brazil, to integrate its operations and support local and international growth. Saudi Arabian Airlines chose SAP solutions as a platform for its far-reaching business model transformation. The airline is integrating its processes for aviation operations, revenue accounting, reservations and ticketing, fuel management, and technical documentation. Finance Plan for SAP Solutions Implementing business software solutions can represent a major investment. A strategic partner of ours, Siemens Financial Services GmbH (SFS), offers a financing service that helps companies invest in SAP solutions. Interest in the service is high: It is offered to customers in 45 countries, and in 2007 we received twice as many inquiries about financing as in the previous year. In 2007, this offer of finance was extended to include large corporations. However, SFS targets the financing service chiefly at the midmarket, and 70% of the customers that signed up were in that segment. In the past, the plan chiefly provided loan finance, but now SFS is adding greater flexibility by offering to lease to customers. IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations 017

20 Income New Income Statement Structure With effect from the first quarter of 2007, we have restructured our income statement to show potential new revenue streams more transparently. We have renamed what was previously called maintenance revenue: This is now shown as support revenue. We have also renamed what was previously called software and maintenance revenue: This is now shown as software and software-related service revenue. We show revenue from subscriptions and other software-related services as an additional item that is an element of software and software-related service revenue. This new item includes revenue from subscriptions, software rentals, on-demand offerings, and from other software-related services. Subscription revenue flows from contracts that have both a software element and a maintenance element. Such a contract typically gives our customer the use of current software and unspecified future products. We take a fixed monthly fee for a definite term as a rule, five years. Software rental revenue flows from software rental contracts, also with software and maintenance elements but here the customer is entitled to the use of current products only. Revenue from our on-demand offerings includes, for example, the SAP CRM on-demand solution revenue, any future ondemand revenue from our new midmarket SAP Business ByDesign solution (to the extent we offer it to customers on an on-demand basis), and revenue from other hosting contracts that do not entitle the customer to readily exit the arrangement. Other software-related services revenue includes, among other things, revenue from software- related revenue-sharing arrangements, for example, our share of revenue from collaboratively developed products. Thus, software and software-related service revenue is the sum of our software revenue, service revenue, and revenue from subscription and other software-related services. In addition, we have renamed what was previously called service revenue: This is now shown as professional services and other service revenue. We have added a new item for other service revenue, shown as an element of service revenue. This new item includes revenue from non-mandatory hosting services, application management services (AMS), and commission. Non-mandatory hosting services revenue is revenue from hosting contracts from which the customer can readily exit if it wishes to run the software on its own systems. AMS is a service we offer to optimize availability and performance of customers IT solutions after implementation. On occasion, we receive commission from partners for which we have identified customers. Thus, professional services and other service revenue corresponds to the sum of consulting revenue, training revenue, and other service revenue. We have restructured the expense items we report to align them with this new structure for reporting revenue. Revenue Target for Software and Software-Related Service Revenue Surpassed We expressed our internal management objectives and operational targets for 2007 in terms of U.S. GAAP and non-gaap financial measures. For that reason, this discussion of the results of our operations refers to U.S. GAAP financial measures and non-gaap financial measures as well as IFRS measures. At the beginning of 2007, we announced ambitious guidance: We set a target of growing our annual software and software-related service revenue, as defined in U.S. GAAP, in the range 12% to 14%, compared on a constant currency basis with We expected U.S. GAAP subscriptions and other software-related services to account for approximately 2% to 4% of total U.S. GAAP software and software-related service revenue. Later in the year, we also announced that we expected U.S. GAAP software and software-related service revenue growth to be at the top end of the target range that we had announced earlier. Our performance exceeded that guidance: On a constant currency basis, our U.S. GAAP software and softwarerelated service revenue grew 17% (13% without adjustment for foreign currency effects) to 7,427 million (2006: 6,596 million; 2005: 5,955 million). Our IFRS software and software-related service revenue also grew 13%, to 7,441 million (2006: 6,605 million), before adjustment for currency effects. This was the fourth year in succession in which we achieved double-digit percentage growth in software and software-related service revenue on a constant currency basis. The proportion of subscriptions and other software-related services in the total software and software-related service revenue was 2.4%, which was within the range published in our guidance. 018 IFRS Financial Reports 2007 SAP Group Review of SAP Group Operations